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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 59078  
Subject: Buy vs. Rent in retirement Date: 2/2/2007 4:21 PM
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Rent an apartment. Buy a condo. Buy a house. Rent a house. Mortgage or no mortgage. What's the best decision?

The answer is "it depends."

First of all, you have to decide what you want. Sure, I could survive in a 2 bedroom apartment, but I don't want to. I want the space and advantages of a house.

Second, the buy vs. rent decision depends on the current housing market, and must take into account all expenses, like property tax and repairs. In general, based on my experiences examining rental property as investments, this is currently one of the better times to rent. Rental income is terribly low right now compared to purchase prices, particularly if you're looking single family homes or multifamily homes rather than apartment buildings.

Renting gives you flexibility, if you feel you might need or want to move. Of course, if you're retiring, you're probably thinking about staying in once place for the rest of your life. My own moves were always motivated by a new job.

The financial side of it comes down to seeing how much you'll reduce your expenses by purchasing. Assume you're going to purchase outright, since the mortgage is a separate decision. If you'll save more than the safe withdrawal rate on the purchase price, buying makes sense financially. If you save less than your SWR, renting is the better financial decision.

Third, mortgages, while usually a great way to leverage funds for investment when you're accumulating money, or if you have a lot more money than you need for retirement, are usually not a good idea if you're close the minimum safe amount of money you need for retirement.

Again, it's a matter of comparing the interest rate on the mortgage to your safe withdrawal rate. Housing loans are almost always more more than your SWR.

- Gus
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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 343 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 12:03 PM
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Third, mortgages, while usually a great way to leverage funds for investment when you're accumulating money, or if you have a lot more money than you need for retirement, are usually not a good idea if you're close the minimum safe amount of money you need for retirement.

Again, it's a matter of comparing the interest rate on the mortgage to your safe withdrawal rate. Housing loans are almost always more more than your SWR.



I agree that mortgages are not a good idea post-FIRE, however not for the reasons that you state.

Here's my thoughts: It always requires a certain amount of risk for ones investments to earn an expected rate of return. After you retire and are living off of your investments, it makes sense to pay off your mortgage because it lowers your withdrawal amount. 0% is the ultimate SWR....

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 372 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 1:17 PM
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It always requires a certain amount of risk for ones investments to earn an expected rate of return. After you retire and are living off of your investments, it makes sense to pay off your mortgage because it lowers your withdrawal amount. 0% is the ultimate SWR....

With sincere apologies, I don't think this is sound reasoning. Paying off your mortgage lowers your withdrawal, but it also reduces your income. That, in turn, can lead to increased risk.

I can't give you a reasonable mortgage example, because in the real world mortgage interest almost always more than your SWR. But rent is sometimes less, and it increases your withdrawal the same way a mortgage does.

Let's say you have $20,000 / year expenses beyond housing and $650,000 to retire. You could retire in an apartment at $500 / month, $6000 / year, or you can buy an equivalent condo for $200,000 plus $100 / month in property taxes and maintenance. Purchasing it reduces your withdrawals by $4800 / year, but it also cuts your total funds to $450,000. $26,000 / year from $650,000 was 4%, but $21,200 / year from $450,000 is 4.7%. Your withdrawal rate has gone up and so has your risk.

That's a pretty ridiculous price for a condo that would rent for $500 / month, but housing prices have climbed in some parts of the country without a corresponding hike in rents.

You can of course argue that you should saving more than $650,000 in this scenario is safer, but that's true whether you purchase or rent. You can always do things that will make you more comfortable, but the point of SWR discussions is to figure out the minimum amount needed to retire safely.

- Gus

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 374 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 1:23 PM
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Here's my thoughts: It always requires a certain amount of risk for ones investments to earn an expected rate of return. After you retire and are living off of your investments, it makes sense to pay off your mortgage because it lowers your withdrawal amount. 0% is the ultimate SWR....

I heard recently that in China and other Asian countries, the norm is more to aggressively pay down mortgages even early in life.

I'm wondering, is there a benefit to aggressively paying down a mortgage if you're in your 30's?

6

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 380 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 1:39 PM
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That's a pretty ridiculous price for a condo that would rent for $500 / month, but housing prices have climbed in some parts of the country without a corresponding hike in rents.


In other places though, rents have climbed higher than housing prices. Are you saying that if that's the case where you live, then it's better to buy than rent?

6

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 389 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:02 PM
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I'm wondering, is there a benefit to aggressively paying down a mortgage if you're in your 30's?

It's an investment decision, like any other. For most purposes, paying down a mortgage is equivalent to making a fixed-income risk-free investment like a CD. The loss of the tax benefit is the same as being taxed on income.

Unless you plan on retiring in the near future, judicious investment in higher-return, higher-risk investments like stocks makes more sense when you're accumulating savings.

That's the financial argument. There's also a psychological one, which is that some people find it difficult to leave savings untouched. Paying off a mortgage as a vehicle for savings makes sense for them, but I have doubts about such people retiring early.

Investment is great, but it's savings that is the key to making it. For many years Debbie and I saved all of my salary. You have to be the kind of person who can say "That's not in our budget" when you have a couple of hundred grand in the bank.

In other places though, rents have climbed higher than housing prices. Are you saying that if that's the case where you live, then it's better to buy than rent?

If you want to stay there, yes. If that's how it works out when you compare the numbers.

Actually, economically it should always be the case. As a renter, you should be paying a premium over the cost of the mortgage on your property for the privilege of being able to walk away at any time. Buying nails you in place in a lot of ways. You have the risk of a drop in prices if you want to move, and you have to pay things like real estate agent fees if you do sell.

In recent years, things have gotten weird. A lot of people will buy investment property with the idea it will appreciate. Not just at the rate of inflation, which is what you'd expect, but a lot faster. So they'll buy investment property and rent it out, but lose money every month because their investment loan is more expensive than the rent.

- Gus

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 392 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:06 PM
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{{In recent years, things have gotten weird. A lot of people will buy investment property with the idea it will appreciate. Not just at the rate of inflation, which is what you'd expect, but a lot faster. So they'll buy investment property and rent it out, but lose money every month because their investment loan is more expensive than the rent.}}

In addition, during the housing boom as homeownership rose, the demand for rental units declined. This caused the price for an apartment to drop or not rise as fast. My rental rate dropped from 2001 to 2006. However, prices are expected to rise in 2007.


c

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 395 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:13 PM
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In recent years, things have gotten weird. A lot of people will buy investment property with the idea it will appreciate. Not just at the rate of inflation, which is what you'd expect, but a lot faster. So they'll buy investment property and rent it out, but lose money every month because their investment loan is more expensive than the rent.

Is this really so recent? I have property that I rent out which has appreciated (and some that hasn't). I do see income property as a long-term investment as well, and at this point it's actually...let's see...75% of my "portfolio" (which also includes nice 401K for my age, teensy Roth and a couple of CDs).

Unless you plan on retiring in the near future, judicious investment in higher-return, higher-risk investments like stocks makes more sense when you're accumulating savings.

Is real estate considered high-risk/high return?

6



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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 400 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:17 PM
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Is this really so recent? I have property that I rent out which has appreciated (and some that hasn't).

The key thing here is buying real estate which actually costs you money every month. Traditionally, RE investors have wanted, at the very least, a slight positive cash flow. I'm sure it's not "new" in the sense that there have probably been periods in the past where people have done the same thing.

Is real estate considered high-risk/high return?

I don't know about anyone else, but I consider it to be high-risk / high-return. It's only low risk if you are investing for the income, not appreciation, and even then you run the risk of rental downturns and vacancies.

- Gus


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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 405 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:27 PM
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I don't know about anyone else, but I consider it to be high-risk / high-return. It's only low risk if you are investing for the income, not appreciation, and even then you run the risk of rental downturns and vacancies.

I guess getting to my real question...if I have a bunch (that is, relative to my total worth) of equity in real estate investments, and about 1/3 of that in stocks...is that lopsided or not a smart path to follow?

6

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Author: cattleman22 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 408 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:30 PM
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{{I guess getting to my real question...if I have a bunch (that is, relative to my total worth) of equity in real estate investments, and about 1/3 of that in stocks...is that lopsided or not a smart path to follow?}}

I think SP has or had a similar portfolio he used as his method to save for retirement. However, SP could perform the maintenance himself. I personally will avoid owning rental units due to not having the skills to repair them myself. I prefer a more handsoff investment.


c

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 410 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:33 PM
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if I have a bunch (that is, relative to my total worth) of equity in real estate investments, and about 1/3 of that in stocks...is that lopsided or not a smart path to follow?

It's absolutely not lopsided. If you know what you're doing, real estate rentals are a perfectly reasonable way to accumulate wealth.

I looked into it seriously myself for a while, but eventually decided that I didn't have enough expertise to equal my performance with stocks. In the present environment, I think you need to know a lot about things that aren't visible on balance sheets. I do better with numbers.

- Gus

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 412 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:38 PM
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It always requires a certain amount of risk for ones investments to earn an expected rate of return. After you retire and are living off of your investments, it makes sense to pay off your mortgage because it lowers your withdrawal amount. 0% is the ultimate SWR....

With sincere apologies, I don't think this is sound reasoning. Paying off your mortgage lowers your withdrawal, but it also reduces your income. That, in turn, can lead to increased risk.


i think that may depend on how one defines 'risk'

(i've been following a thread on another board discussing Options)


to some degree, for some(?), 'risk' involves an insomnia factor.

SWR depends at least some on 'earnings rate' in your portfolio (no? intercst?) ... but there's always risk the "ER" will fall .. fall enough and you have trouble making the mortgage. Enough trouble making the mort. and you're living in an abandoned car. Extreme, maybe even impossible scenario, but it does keep people awake at night. Pay off the mortgage and much of that 'risk' goes away ... now a fall in "ER" just means eating Dog food.


=j
.....Believer in the theory that not all financial decisions are financial ... i'm sure there's some mathematical def. of "risk" ... but most people "feel" something different.

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 413 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:40 PM
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I looked into it seriously myself for a while, but eventually decided that I didn't have enough expertise to equal my performance with stocks. In the present environment, I think you need to know a lot about things that aren't visible on balance sheets. I do better with numbers.

I agree with that. It's definitely not something I would have set out to do or learn, I more backed into it by being in such a rush to leave the midwest that I didn't have time to sell my house there. Since then I've made probably half of the worst mistakes you can make as a rental owner and have learned a lot.

I am not much of a numbers person...for me, the money I have in stocks and funds is a little scary because it can't be seen or touched.

6



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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 417 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:50 PM
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Here is how I always thought about the mortgage issue in retirement...
A mortgage is really you selling a bond to somebody else. MOST people in retirement will have a certain percentage of their funds in bonds. Does it make sense to sell a bond (buy a mortgage?) and then turn around and use the money to buy a bond? I basically look at the home equity part of my net worth as as part of my bond portfolio in my asset allocation that I get "friction free".

Put another way, since the house is paid off more of my spending is discretionary and as such I can take a little more risk with the equity piece.

In terms of buy versus rent... if you know where you want to live, buy. If you are shopping around, trying out different places... then rent until you decide to "settle down".
--Alan

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 418 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:56 PM
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In recent years, things have gotten weird. A lot of people will buy investment property with the idea it will appreciate. Not just at the rate of inflation, which is what you'd expect, but a lot faster. So they'll buy investment property and rent it out, but lose money every month because their investment loan is more expensive than the rent.

Is this really so recent? I have property that I rent out which has appreciated (and some that hasn't). I do see income property as a long-term investment as well, and at this point it's actually...let's see...75% of my "portfolio" (which also includes nice 401K for my age, teensy Roth and a couple of CDs).


i think it's fairly recent that Expected short-term appreciation of real estate has turned things around.

people are buying rental prop. expecting huge increases in 'value' so they don't expect rent to cover the cost (strikes *me* as Risky).

... recently there was a duplex in the neighborhood on sale ... the flyer said, currently renting for X. Estimating mortgage and taxes ..costs would have been nearly 2X. Anyone buying it would almost have to think the place would appreciate so they could sell & make back those losses (they can't raise the rent too much because they're competing against property with lower taxes and mortgages)


=

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 2:57 PM
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I more backed into it by being in such a rush to leave the midwest that I didn't have time to sell my house there.

Debbie and I have been landlords in the past for pretty much the same reason. We used to own apartments in New York that Debbie once lived in, and a house in Los Angeles that she also once lived it.

We did pretty badly with those, as investments, because they weren't purchased with a rate of return on investment in mind.

- Gus

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 422 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 3:06 PM
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We did pretty badly with those, as investments, because they weren't purchased with a rate of return on investment in mind.,

I bought that place thinking I would live there for years and years. Turns out just years was plenty.

In many cities, rent far outstrips housing prices. I have done well in Minneapolis for that reason, although the real estate market has climbed fairly dramatically there in recent years.

The problem with Mpls is that I don't EVER want to go there again. I am looking into trying to move my investments to a, well, warmer place. Atlanta and Austin are two other places where rents are juicy compared to mortgages.

One of the big lessons I've learned is that if you're a small fish, you are likely to be treated poorly by a management company. For that reason I would like to have my investments concentrated in one city.

And because I live in Southern CA, no way would I invest here unless I got into very short-term flipping.

6

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 429 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 3:27 PM
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The problem with Minneapolis is that I don't EVER want to go there again.

Was it really that bad there? Or is it just the climate that was bad?

- Gus

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Author: whafa Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 431 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 3:41 PM
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Was it really that bad there? Or is it just the climate that was bad?

- Gus


Climate has a profound effect on daily life.

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 432 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 3:48 PM
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Was it really that bad there? Or is it just the climate that was bad?


I never thought it was so bad until I left. I was in CA for three weeks before I went back for my first visit (Thanksgiving), and I was shocked at the unfavorable comparison. The landscape was BLEAK, flat and dead and kinda spooky. The city was filthy compared to San Diego, the roads are horrible and the traffic is easily as bad as LA. The only time it's nice there is early autumn when the leaves first start to change. In the summer it's stiflingly hot and humid.

One of my favorite things about living down here is the lack of really short days and really long days. Neither is fun.

6 (it's 82 here right now..it'll be the same in July)

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 434 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 3:50 PM
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GusSmed asks,

Was it really that bad there? Or is it just the climate that was bad?


Isn't something like 40 below zero in Minneapolis today?

intercst

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 437 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 4:02 PM
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Isn't something like 40 below zero in Minneapolis today?

That's booger-freezing weather.

6

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Author: ogrecat Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 439 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 4:38 PM
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In terms of buy versus rent... if you know where you want to live, buy. If you are shopping around, trying out different places... then rent until you decide to "settle down".

But sometimes you get to the point where the maintenance becomes an expensive pain.



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Author: AngelMay Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 443 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 4:55 PM
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Isn't something like 40 below zero in Minneapolis today?

That's booger-freezing weather.

6




LOL!

AM
....oy. my sides are aching....:)

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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 449 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 5:25 PM
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But sometimes you get to the point where the maintenance becomes an expensive pain.
Under the assumption that since the landlord buys maintenance in bulk he can get a better rate on it than you can?
The landlord is not in the business because they are charitable, but to make money. They buy the place and rent it to you, and pay for the maintenance on it, expecting to make a profit. If you bypass the middleman (landlord) you should save the expense of that middleman... less friction.
right?
--Alan


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Author: tedhimself Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 455 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 5:57 PM
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Under the assumption that since the landlord buys maintenance in bulk he can get a better rate on it than you can?
The landlord is not in the business because they are charitable, but to make money.


I used a management agency to take care of and rent out a house for me when I moved to a different town. I got suspecious of his repairmen when things kept going wrong at short invervals. They reported that the air conditioning compressor had to be replaced when they had replaced it only two years previously. I found my own repairman and he replaced only the fan at a much lower cost. Of course I fired that property manager.
Ted

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 457 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 6:05 PM
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Gus: It's an investment decision, like any other. For most purposes, paying down a mortgage is equivalent to making a fixed-income risk-free investment like a CD. The loss of the tax benefit is the same as being taxed on income.

Except you can still claim the standard deduction. Then your house mortgage interest gets low, the standard deduction nullifies that concern, and in face makes paying the mortgage off more attractive.

We still have a mortgage.

cliff

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 459 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 6:14 PM
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I'm wondering, is there a benefit to aggressively paying down a mortgage if you're in your 30's?

6

You can take the standard deduction, which is a gift if you don't spend enough to match it in actual deductions.

Vickifool -- too generous to be standard.

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Author: sofaking6 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 464 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 6:20 PM
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You can take the standard deduction, which is a gift if you don't spend enough to match it in actual deductions.

What is the standard deduction? I don't remember anymore..I think the last time I qualified it was around $3500?

I had $18k in mortgage interest this year.

I can definitely see that if the interest payments on a primary residence dropped low enough to be negligable as a deduction it would start to make paying off the loan far more attractive.

But for investment properties...I just don't know. I guess until I move up to multi-unit buildings it's almost moot since I don't plan on keeping any property for *that* long.

6

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 469 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 6:27 PM
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As a renter, you should be paying a premium over the cost of the mortgage on your property for the privilege of being able to walk away at any time. Buying nails you in place in a lot of ways. You have the risk of a drop in prices if you want to move, and you have to pay things like real estate agent fees if you do sell.


In California, another "nail" is that the property taxes stay fixed if you don't remodel. We got a more expensive house when the local high school was unsuitable for our kids, and kept the old house just in case we want to move back.

Vickifool

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 473 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 6:39 PM
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Here is how I always thought about the mortgage issue in retirement...
A mortgage is really you selling a bond to somebody else. MOST people in retirement will have a certain percentage of their funds in bonds. Does it make sense to sell a bond (buy a mortgage?) and then turn around and use the money to buy a bond? I basically look at the home equity part of my net worth as as part of my bond portfolio in my asset allocation that I get "friction free".


Excellent!

Where have you been all my (TMF) life?

Vickifool

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 487 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 7:52 PM
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Except you can still claim the standard deduction. Then your house mortgage interest gets low, the standard deduction nullifies that concern, and in face makes paying the mortgage off more attractive.

I included a remark to that effect when I first wrote that paragraph, but deleted it because I felt it made it overly complicated. The effect isn't really a large one, boosting your return from from maybe 4.5% to 6%, depending on the mortgage. Sure, I'll take an extra 1.5% where I can get it, but when you're talking about the accumulation phase and the alternative is stocks and a hoped-for 10% return, it doesn't change the decision.

- Gus


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Author: SeattlePioneer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 499 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 9:14 PM
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<<I think SP has or had a similar portfolio he used as his method to save for retirement. However, SP could perform the maintenance himself. I personally will avoid owning rental units due to not having the skills to repair them myself. I prefer a more handsoff investment.


c
>>


That's right. By managing and maintaining my rental roperties myself, it allowed me to earn top dollar for the time I spent and have the income (added rental profits) be lightly taxed because I was paying no self employment taxes on the added income.


That worked well for me, for a time, anyway. But eventually I added additional rental properties and my repair business to a full time job and I was driving myself nuts with overwork.

But one of the ways that working people can add to our incomes is to look for productive ways to spend extra time. It takes some judgement though.



Seattle Pioneer

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Author: vickifool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 507 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/5/2007 9:47 PM
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What is the standard deduction? I don't remember anymore..I think the last time I qualified it was around $3500?


Here you go:

http://www.irs.gov/pub/irs-pdf/p501.pdf



Vickifool
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Author: alan81 Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 549 of 59078
Subject: Re: Buy vs. Rent in retirement Date: 2/6/2007 12:57 AM
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Where have you been all my (TMF) life?
Mostly hangin' out on the INTC board... but that place is pretty dead these days. Noticed you like the stock, you should visit the board:-)
--Alan

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